Allowance for Doubtful Accounts

9 Months Ended

Sep. 30, 2021

Note 4—Allowance for Doubtful Accounts

In making the Company’s credit evaluations, management considers the general collection risk associated with trends in the long-term care industry. The Company establishes credit limits through payment terms with customers, performs ongoing credit evaluations and monitors accounts on an aging schedule basis to minimize the risk of loss. Despite the Company’s efforts to minimize credit risk exposure, customers could be adversely affected if future industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. The full effects of COVID-19 on the Company’s customers are highly uncertain and cannot be predicted. As a result, the Company’s future collection experience can differ significantly from historical collection trends. If the Company’s customers experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

The Company evaluates its accounts and notes receivable for expected credit losses quarterly. Accounts receivables are evaluated based on internally developed credit quality indicators derived from the aging of receivables. Notes receivable are evaluated based on internally developed credit quality indicators derived from Management’s assessment of collection risk. The Company manages note receivable portfolios using a two tiered approach by disaggregating standard notes receivables, which are promissory notes in good standing, from those who have been identified by Management as having an elevated credit risk profile due to a triggering event such as bankruptcy. At the end of each period, the Company sets a reserve for expected credit losses on standard notes receivable based on the Company’s historical loss rate. Notes receivable with an elevated risk profile, which are from customers who have filed bankruptcy, are subject to collections activity or are slow payers that are experiencing financial difficulties, are aggregated and evaluated to determine the total reserve for the class of receivable.

The guidance in ASC 326 permits entities to make an accounting policy election not to measure an estimate for credit losses on accrued interest if those entities write-off accrued interest deemed uncollectible in a timely manner. The Company follows an income recognition policy on all interest earned on notes receivable. Under such policy the Company accounts for all notes receivable on a non-accrual basis and defers the recognition of any interest income until receipt of cash payments. This policy was established, recognizing the environment of the long-term care industry, and not because such notes receivable are necessarily impaired. Accordingly, the Company does not record a credit loss adjustment for accrued interest. Interest income from notes receivable for both the three months ended September 30, 2021 and 2020 was $0.3 million, respectively. Interest income from notes receivable for the nine months ended September 30, 2021 and 2020 was $1.0 million and $1.3 million, respectively.

As part of the Company’s adoption of ASC 326, there are additional disclosures required to be made on a class of financing receivable basis. The following table presents the Company’s two tiers of notes receivable further disaggregated by year of origination, as well as write-off activity for the current nine month period ended September 30, 2021.


	Notes Receivable
	Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Total
	(in thousands)
Notes Receivable
Standard notes receivable	$	11,414	$	8,181	$	2,060	$	18,980	$	21,289	$	1,560	$	63,484
Elevated risk notes receivable	$	—	$	—	$	617	$	—	$	723	$	1,374	$	2,714

Current-period gross write-offs	$	—	$	—	$	—	$	315	$	2,493	$	—	$	2,808
Current-period recoveries	—		—		(1)		—		—		(37)		(38)
Current-period net write-offs	$	—	$	—	$	(1)	$	315	$	2,493	$	(37)	$	2,770

The following table provides information as to the status of payment on the Company’s notes receivable which were past due as of September 30, 2021:


	Age Analysis of Past-Due Notes Receivable as of September 30, 2021
	0-90 Days		91 - 180 Days		Greater than 181 Days		Total
	(in thousands)
Notes Receivable
Standard notes receivable	$	5,709	$	877	$	5,589	$	12,175
Elevated risk notes receivable	—		—		2,714		2,714
	$	5,709	$	877	$	8,303	$	14,889

The following tables provide a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended September 30, 2021 and 2020.


	Allowance for doubtful accounts
Portfolio Segment:	June 30, 2021		Write-Offs1		Bad Debt Expense		September 30, 2021
	(in thousands)
Accounts receivable	$	50,243	$	(427)	$	4,230	$	54,046

Notes Receivable
Standard notes receivable	$	12,534	$	—	$	(149)	$	12,385
Elevated risk notes receivable	1,583		—		—		1,583
Total notes receivable	$	14,117	$	—	$	(149)	$	13,968
Total accounts and notes receivable	$	64,360	$	(427)	$	4,081	$	68,014

1.Write-offs are shown net of recoveries. During the three months ended September 30, 2021, the Company collected an immaterial amount of accounts receivables and notes receivables which had previously been written-off as uncollectible.


	Allowance for doubtful accounts
Portfolio Segment:	June 30, 2020		Write-Offs1		Bad Debt Expense		September 30, 2020
	(in thousands)
Accounts receivable	$	66,299	$	(2,475)	$	967	$	64,791

Notes Receivable
Standard notes receivable	$	11,869	$	(253)	$	(132)	$	11,484
Elevated risk notes receivable	5,818		—		—		5,818
Total notes receivable	$	17,687	$	(253)	$	(132)	$	17,302
Total accounts and notes receivable	$	83,986	$	(2,728)	$	835	$	82,093

1.Write-offs are shown net of recoveries. During the three months ended September 30, 2020, the Company collected $0.1 million of accounts receivables which had previously been written-off as uncollectible.

The following tables provide a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the nine months ended September 30, 2021 and 2020.


	Allowance for doubtful accounts
Portfolio Segment:	December 31, 2020		Write-Offs1		Bad Debt Expense		September 30, 2021
	(in thousands)
Accounts receivable	$	51,052	$	(7,807)	$	10,801	$	54,046

Notes receivable
Standard notes receivable	$	13,258	$	(9)	$	(864)	$	12,385
Elevated risk notes receivable	3,491		(2,761)		853		1,583
Total notes receivable	$	16,749	$	(2,770)	$	(11)	$	13,968
Total accounts and notes receivable	$	67,801	$	(10,577)	$	10,790	$	68,014

1.Write-offs are shown net of recoveries. During the nine months ended September 30, 2021, the Company collected $0.1 million of accounts receivables and notes receivables which had previously been written-off as uncollectible.


	Allowance for doubtful accounts
Portfolio Segment:	December 31, 2019		Cumulative effect of ASC 326 adoption1		Write-Offs2		Bad Debt Expense		September 30, 2020
	(in thousands)
Accounts receivable	$	39,903	$	36,709	$	(16,871)	$	5,050	$	64,791

Notes receivable
Standard notes receivable	$	6,667	$	5,236	$	(1,974)	$	1,555	$	11,484
Elevated risk notes receivable	5,823		291		(447)		151		5,818
Total notes receivable	$	12,490	$	5,527	$	(2,421)	$	1,706	$	17,302
Total accounts and notes receivable	$	52,393	$	42,236	$	(19,292)	$	6,756	$	82,093

1.Represents the pre-tax one-time adjustment to the Company’s 2020 opening retained earnings balance in accordance with the adoption of the CECL accounting guidance.

2.Write-offs are shown net of recoveries. During the nine months ended September 30, 2020, the Company collected $0.9 million of accounts receivables which had previously been written-off as uncollectible.